Economic Projections
Global economic growth predictions are tempering, falling below historical benchmarks. This is largely attributed to more stringent monetary policies worldwide and a less vigorous economic recovery in China. On the Australian front, the journey to accelerated economic growth is facing impediments from mounting costs and escalating interest rates. However, optimism remains that with rising national wealth, the economy will gather momentum over time.
The Australian job market shows signs of potential weakening, potentially leading to higher unemployment and underemployment rates. Yet, the silver lining is the anticipated reduction in inflation rates: dropping to around 3¼% by the tail end of 2024 and steadying within the 2-3% target range by the close of 2025. This descent is expected to be propelled by factors such as declining goods prices, mounting electricity costs, and sustained inflation in services. Key underlying assumptions include the cash rate cresting at 4¼% by 2023's close, then descending to 3¼% by 2025's end. Also factored in are stable exchange rates and consistent gasoline prices akin to those in the June quarter. As we peer into the future, population growth rates are projected to recede to pre-pandemic norms of approximately 1.5%, scaling down from the current 2%.
Delving into the intricacies of inflation in Australia, we see a gradual ebbing. Though consumer price inflation is on the decline, it's persistently high and widespread. Goods prices' pressures are showing signs of relenting, whereas inflation in services remains tenacious. On the whole, the inflationary landscape hasn't shifted dramatically in recent times. Factors such as burgeoning unit labor costs and mounting rent inflation counterbalance the impacts of economic activity projections and goods price inflation. A forward-looking view anticipates inflation to settle around 3¼% by 2024's end and to stabilize within a bracket of 2¾% as we wrap up 2025.
On the economic growth frontier, upcoming predictions signal a tepid phase. GDP growth might remain muted throughout 2023, accompanied by a downturn in GDP per capita. Driving this outlook are factors such as contained household expenditure, influenced by surging interest rates and cost-of-living pressures squeezing real disposable income. Yet, there's optimism that rising household net wealth, anchored by recent hikes in housing prices, will offer some economic relief. Forecasts for subsequent GDP growth lean positive, spurred by rising household consumption and burgeoning public demand.
Predictions for consumption growth foresee ongoing restraint, with recovery anticipated around late 2024. The construction sector, a significant component of private investment, grapples with labor shortages. In contrast, non-mining equipment investments are expected to stay robust in the short run before tempering.
Public demand is projected to ascend, sustained by modest growth in public consumption, propelled by programs like the National Disability Insurance Scheme. Export growth appears promising, primarily backed by education and travel sectors. However, rural exports might experience a dip.
On the employment front, the unemployment rate might tick upwards, affected by slower economic growth. Though the labor market's conditions might be less tight than they were in late 2022, the unemployment rate is still expected to remain below pre-pandemic levels. On wages, growth is anticipated to ascend in the short run and then moderate by 2025.
In summary, while challenges loom on the horizon, underlying indicators suggest that the Australian economy, backed by its robust institutions and policy frameworks, is well-poised to navigate them and emerge resilient.
Source: https://www.investopedia.com/terms/d/defaultrisk.asp